Managing demand, supply dynamics: Ogra directs ministry to devise more effective strategy in relation to imported RLNG

ISLAMABAD: The Oil and Gas Regulatory Authority (Ogra) has directed the Ministry of Energy to devise a more effective strategy for managing the demand and supply dynamics of imported RLNG in the future.

This directive comes in response to lower-than-expected consumption in the power and fertilizer sectors, which has led the federal government to redirect expensive fuel towards domestic consumers for the fiscal year 2023-24.

Any revision, as advised by the federal government, shall be accordingly notified by the Ogra.

Till such time the existing category-wise natural gas sale prices shall continue to prevail. The federal government in November 2023 and February 2024 massively increased the gas tariff for domestic consumers.

The Oil and Gas Regulator released its decision on the petition filed by SNGPL for its estimated revenue requirement (ERR) for fiscal year 2024-25.

The average prescribed price per MMBTU of gas is recommended as Rs1635.90 and the decrease in price per MMBTU is Rs179.17 with a decrease percentage of 10 percent for Sui Northern Gas Pipeline Limited (SNGPL) and an average prescribed price for Sui Southern Gas Company Limited (SSGC) is determined as Rs1401.25 with a decrease in price per MMBTU is Rs59.23 and the decrease percentage is four percent.

The petitioner’s total operating income is estimated at Rs692 billion as against the revenue requirement of Rs607 billion and there is a surplus of Rs66.5 billion. In order to adjust this surplus, the Ogra makes a downward revision of Rs179.17 per mmbtu in the prescribed price, thereby, determining the average prescribed price at Rs1635.90 per mmbtu for next year.

The regulator determined that the total estimated sales revenue at Rs301 billion as against the net revenue requirement at Rs289 billion and thus, there is a surplus of Rs12.2 billion in ERR for the next year. In order to adjust thus surplus, the authority makes a downward revision of four percent for SSGC.

In its decision on SNGPL’s petition, the Ogra states matter of extensive review of the entire supply chain of system gas as well as RLNG including sectoral priorities and allocation is referred to the Ministry of Energy, being the policy maker, where both divisions i.e. power and petroleum coordinate with concerned ministries for better estimation of demand-supply.

The authority is of the view that long-term policy in terms of sectoral demands and its contribution to GDP and other economics needs to be reviewed holistically by the Ministry of Energy, considering G to G international contractual obligations, blending proportion as contested by industrial consumers and the diversion impact on rest of the sector in case of reduced off-takes by RLNG dedicated consumers.

The petitioner (SNGPL) argued that owing to reduced take or pay with the power sector from 66 per cent to 33 per cent, the company was left with no option to divert more RLNG to domestic so as to handle demurrage charges on international contracts as well as saturation of system pack. The other factor is the shifting of RLNE-based fertilizer plants i.e. Fatimafert and Agritect Ltd to system gas. These plants were earlier supplied RLNG.

Reduction of RLNG supply to power and fertilizer plants SNGPL has projected diversion of costly around 80,155 BBTU of imported RLNG to domestic consumers with effect from July 1, 2024. The total cost of Rs298 billion has been demanded against diverted RLNG volume for the said year.

However, the regulator decides to allow RLNG diversion at 53,976 BBTU and determines sale volume against domestic consumers at 206,982 BBTU.

The regulator also directs the petitioner to divert the system gas to RLNG power plants when there is comparatively higher demand (in summer) to save overburdening on the indigenous gas consumer.

The Oil and Gas Regulator considered the company’s operational issues, government-to-government commitments, system constraints, and the prevent domestic demand after the moratorium of the ban on domestic gas connections and gradual increase in gas tariff by the federal government.

Reduced off-takes from power sector consumers have disrupted the entire RLNG supply management, resulting in more diversion to the domestic sector.

In the public hearing held in Lahore and Peshawar, stakeholders argued the RLNG diversion volume of 80,155 BBTU to the domestic sector in the next fiscal year costing Rs298 billion under the cost of the gas basket would lead to a huge increase in average prescribed price, therefore, they demanded to review basis of gas price computation.

The petitioner initially filed the petition on January 17, 2024, for the determination of ERR for FY2024-25.

Later, submitted a revised petition on February 19, 2024, incorporating the impact of revised gas sale prices effective February 1, 2024.

Copyright Business Recorder, 2024